Part 1 of a 3 part series
I had a friend in high school, Shawn, who personified “music lover” to unhealthy extremes. Shawn spent a good portion of his money on albums, but coming from a humble background, it was never enough. He invested in a CD burner soon after they hit the market, borrowing and burning his friends’ and families’ CD collections, stacks at a time. Shawn was addicted to music — to the brink of clinical obsession — and the more he fed it, the more his appetite grew, until his friends’ collections were tapped. So he began stealing from the local Tower Records. And as unnatural born criminals are wont to do, Shawn soon became careless and brazen. He was arrested on a sunny Saturday afternoon, lead away in handcuffs while a throng of shoppers gathered to watch the suburban spectacle. A good kid at heart and in school, Shawn was especially devastated by the quiet disappointment of his parents. However, he soon found peace with himself, interpreting the whole incidence as a blessing that nipped a nascent criminal career in the bud.
Ten years later, in 2007, Shawn has since downloaded enough songs to fill the shelves at the same Tower Records store that prosecuted him… that is, if Tower were still in business. Poetic justice? Well… not really. But you should see Shawn’s smile when he’s showing off his music collection — priceless.
Just like how much he payed for his collection.
We all know that the music business isn’t looking too healthy these days. There’s an earthquake rattling the foundations of the old media empire, and nothing fits better into the shifting continental plates than those cute little MP3 files. The era of plastic packaging was a very profitable era for the music industry; one that they damn near got down to a quantifiable science. That business peaked in 2000, with U.S. consumers buying over 788.6 million albums. Unfortunately for them, that was also the year Napster hit critical mass.
So it’s understandable that the music industry’s natural reaction would be to guard the old model, via RIAA scare tactic lawsuits and laughable PSAs. It’s what they know, it’s what made them rich, and backed into a corner, naturally, they snarl. They seem scary now, but inevitability will run its due course.
Just 6 years into the post-Napster era, U.S. consumers purchased 553.2 million albums… a laughably morbid 30% decline. But what of the contributions of the record-breaking 27.6 million purchased digital album downloads in 2006? Nothing but a drop in the differential bucket; a shot of morpheme for a terminally ill business model.
However, music itself is thriving. Thanks to file sharing – whether legal or not – even casual music fans own literally thousands of albums and songs; a collection once previously reserved for only the most wealthiest of music aficionados. So while CD sales are plunging ever further down the red ink abyss, more people are listening to more recordings by more artists than ever before. Music itself – as a sound unit, rather than as a SoundScan unit — has entered a golden age that looks even more golden down the road.
And what exactly does that inevitable future look like? Well, it looks absolutely liberating. Virtually any song ever recorded will be available legally, on-demand, and most importantly, at absolutely no cost to the consumer. Artists will eat. Labels will profit. And the music! The music will ring loud, far and wide, existing in its most natural state of being, liberated from the confines of priced units.
Of course, money still makes the world go round. Let’s diagram the brutally simple money flowchart …
CREAM. It’s the money. Dolla Dolla Bills yall.
Freedom’s just another word for nothin’ left to lose
Nothin’, don’t mean nothin’ hon’ if it ain’t free, no no
– Janis Joplan, Me and My Bobby McGee
The new music order can be summed up in the following phrase: ad supported media streaming. Soon enough, even downloading will be obsolete.
In the new era, consumers will not be storing their files in their computers, but in their personalized playlists and libraries stored on servers, from which they will stream their media. Online applications will become the streaming platform (or “sideloading players”) that replaces the usual desktop, client-side apps like iTunes, WinAmp, or Windows Media Player. These platforms will become a sophisticated ad serving application, replacing what we future old timers liked to call “CD sales revenues”. This revenue will then be split with the content providers (i.e. artists, labels) in proportion to their respective playback.
We will never have to worry about ads becoming too intrusive. While MP3’s themselves might become an endangered file in personal hard drives, the very possibility of downloading should serve as an invisible hand regulating the ad-hawks of the future music industry. After all, anything that pushes users away from streaming and towards downloading will directly hurt this new industry’s bottom line. And as Wu-Tang reminds us, it’s all about the money.
Dolla dolla bills yall.
Sound a bit too utopian to believe? Malcolm Gladwell points out in his revelatory book, Tipping Point, that the aggregation of several nominal factors can push a phenomenon past a “tipping point”, where said phenomenon launches into the meaty part of its bell curve. Or in non-Gladwellian language (yes, I’ve just coined a new term), here are the 5 trends that speak to the inevitability of our future music utopia:
1.) Declining CD Sales Revenue
Cause if it isn’t making dollars / Then it isn’t making sense /
If you aren’t moving units / Then you’re not worth the expense
– Pedro the Lion, Penetration
This one should self-evident. The numbers are bad, and falling quick. Go ahead and write up your eulogies, “moving units” is as good as done. I’m going to genuinely miss the experience, the crackling of the plastic, popping the disc into the Discman in the Tower parking lot whilst gorging the liner notes… is how my eulogy begins.
2.) If It Ain’t Free, It Ain’t Worth It
Oh, baby, it would mean so much to me,
Oh, baby, to buy you all the things you need for free.
– Patti Smith, Free Money
A lot of tech pundits like to point out that illegal downloaders aren’t in it to stiff the music industry, but because piracy is “user-behavior” friendly and convenient. The success of iTunes is often cited as proof that people are willing to pay for music content. iTunes’ intuitive, all-in-one platform was the first legitimate digital music purveyor that made consumption even more convenient, more reliable and safer than illegal downloads, thus satisfying much of the tenets of “user-behavior” theory.
Which is fine and dandy and probably partially true, but I let’s not be naïve: plenty of folks have downloaded hard drives full of MP3s without ever paying a dime for it – a proud accomplishment of yours truly, in fact. Piracy is here to stay, and as the generations get younger and more savvy, “stealing” (as it relates to music downloads) becomes a concept increasingly easier to euphemize. This will not be a gradual process. An industry built on blockbuster hits, fueled in large part by the mob-mentality of the youth demographic, is already realizing the many meanings of “early adopters”.
Pandora’s box has cracked. iTunes and their greatest unintentional marketer, the RIAA, are stopgag patches to the widening flood of free and open music distribution. A whole generation of consumers have not only grown an appetite for free music, but an expectation for it as well. Legitimately buying an album has become something of a ritualistic act to support a particular artists – an exception of charity rather than a rule of commerce. Under the current model of “moving units,” digital or physical, revenues will dwindle to unsustainable levels, whether they like it or not.
The key, then, is to build a business model that accepts and assumes free music for consumers as basic and inescapable tenet.
3.) Web OS
I had to break the window / It was in my way
Better that I break a window / Then forget what I had to say
Or miss what I should see / Or breaking him or her or me
– Fiona Apple, Window
Smart people and tech journalists both have almost anointed Facebook as the next precocious startup to take over the world, and perhaps deservedly so. It’s no coincidence that their first ever acquisition was Parakey, another startup working on the early stages of the next big thing – Web Operating System, or Web OS. While a lot of smart people are trying to figure out the details, the general concept is that the Web OS will be the online software application/platform to organize all your files and programs, which will also move online. Essentially, a Web OS will become the Microsoft Windows of your personal online world.
Google, the current (tech) ruler of the world, has already released several browser-based online applications that mimic the Microsoft software we all know (and love?), like Word, Excel and PowerPoint. Gmail, Yahoo Mail, Hotmail and other webmail providers have already supplanted Outlook long ago. These efforts represents but the tip of the iceberg in Google’s efforts to lead the world online. The stakes are high, the competitors numerous, the race ferocious.
The key thing to take away is this: personal computers will shed much of its hardware and evolve into portals to our online world. In this world, centralized servers will host and serve most of our personal files and applications, where it can live, sleep and frolic with other bits of data. Pundits that get themselves stuck in the “downloading” paradigm of the new music industry are missing the big picture. Computers themselves will be interchangeable: the moniker “personal” will shift from a prefix of “computer” to a prefix of “Web OS.”
In this new data environment, personal files and data will undoubtedly remain static and stored in respective personal online space. Files along graduated levels of privacy will interact and share along appropriately graduated levels of guarded networks. On the far end of the spectrum lies public pieces of data that remain the same for all consumers, like music files. Music files will no longer be “uploaded” and “downloaded” between personal computers and the internet/servers. Instead, the Web OS architecture will most likely store these files in centralized spaces, ready to be “sideloaded” unto personalized web applications and playlists. Streaming media is a fair analogy to this process.
The Web OS paradigm has several implications for the music industry. One, people will evolve even further away from the interim “downloading” paradigm. Which goes hand in hand with point two: streaming media or “sideloading” applications will become the dominant consumption mode. Three, unlike the one time, lump-sum monetization of legitimate downloading, ad-supported streaming offers a chance to monetize off each and every playback.
Of course, the proliferation of Web OS adoption hinges upon access to the internet, which brings us to the third overarching trend…
4.) Wireless Proliferation
Son I’m sendin it out, for the short to long haul
Earth sky, left right in between it and all y’all
Now raise your hands in the air now everybody get with it
The Universal, Magnetically
– Mos Def, Next Universe
This one requires the least amount of imagination. Several major cities and states, including San Francisco, Philadelphia and Massachusetts have already accepted bids to build public broadband wireless networks. Google has already pledged the minimum bid in the impending auction of a premium wavelength for the purposes of wireless internet access. It doesn’t take a visionary to imagine that soon, even the mayor of Booneyville, U.S.A. will be able to watch Beverly Hillbilly highlights on YouTube with nothing more than a wireless card.
For all the hype regarding the future of Web OS, whipped up by yours truly, the fact of the matter is, personal online playlists are already here and arguably past the early adapter tipping point. Current Web 2.0 sites like imeem.com and projectplaylist.com allow users to upload their personal MP3s onto an online playlist and library. On the flip side of the “uploading” spectrum, ever sophisticated audio-only search engines like Hypemachine.com, ProjectPlaylist.com and Skreemr.com can search for just about any popular song or artist and stream directly off the respective search results page. In both modes of consumption, universal wireless access only lowers the resistance threshold to either mode of music consumption.
Connecting back to the Web OS paradigm, we have 2 interrelated continuums working here:
1.) people are steadily adopting streaming media as a means of consuming their music and
2.) Web OS or online applications and software are launching and gaining traction.
Both continuums are rumbling down increasing adoption with each passing day, spurred along by growing Wi-Fi access towards an intersecting tipping point. Sort of like the chicken and the egg spurred along by evolution – it doesn’t matter which one wins, it all ends up as a delicious piece of extra crispy. Let that one marinate for a bit.
5.) So Darwin was strolling along Madison Avenue the other day, and….
Now I got to give a shout out to Seagram’s Gin
Cause I’m drinkin’ it and they payin’ me for it.
– Petey Pablo, Freek-a-leek
Google built an empire on the foundation of relevant word-based advertising. An elegant, profitable idea. A bit further down the online ad lineage, DoubleClick built a mini empire off banner ads. Simple advertising solutions have built these ridiculously profitable businesses that has in turn, sustained an industry of websites and publishers. Granted, they were well timely solutions, but simple none-the-less. You can bet the garage there’s a brilliant Stanford dropout somewhere working on the next killer advertising platform; one that will capitalize on the increasingly interactive and integrated intraweb landscape. The Web 2.0 is just about ready to move on to the next integer, dragging Online Advertising 1.0 along. Innovation is never too far behind the scent of money.
Meanwhile, advertisers follow where the eyeballs go. Appropriately and proportionately so, revenue is pouring into the online advertising industry in leaps and bounds.
Revisiting my favorite conceptual apparatus, we again have 2 interrelated continuums working here:
1.) the evolution of online advertising platforms and solutions and
2.) More advertisers pouring more money into online advertisements.
Both are spurred forward by eyeballs, the bastard children of our promiscuous friend, universal Wi-Fi.
Considering the the very infancy of the online advertising arena, you might find it difficult imagining it as a source of significant revenue. Further dampening advertising’s prospects, the threat and ease of downloading unmonetizable files will naturally regulate the ads’ immersive presence. In fact, I have a hard time imagining actual audio-roll ads, like radio, which would push potential eyeballs eardrums away from a profitable balance. How then, is it possible to find a sustaining balance of ads?
The key might be in the multi-platform, interactive nature of social media. Even today, people don’t just listen to music online. They share it. They talk about it. They join forums, chat rooms, groups and other online communities associated with their favorite music. These one-to-one or few-to-few communication avenues are ripe pickings for ad monetization, given a killer ad serving platform. In turn, the killer web based playlist application can add these avenues of ad monetization to the revenue pot.
Google found an elegant ad serving solution based on searches. When an equally elegant ad-serving solution based on the highly contextualized and richly layered interactions of social-networking is found, you better believe it”s going to be big enough to sustain a whole bunch of media industries.
So in the grand scheme of things, we are still in the infancy stages of online advertising. And while I might sound sure of myself, the very youth of this advertising infant admitingly renders my general hypothesis a bit speculative. But while even a crystal ball wielding economist would have trouble calculating how the numbers will shake out, it will indeed shake out. Ad revenues will continue to grow while music labels continue to grow fiscally efficient. At some point, the two will intersect into a beautiful solution.
Conclusion: The Fabulous Five and Parenting Advice
We ahead of the charts / man, we better than smart/
We gon’ get up in the industry and tear it apart
– Pep Love of Hieroglyphics, Prelude
So there you have it – the 5 overarching trends rumbling along to converge in a future of free on-demand, streaming music. Let’s review:
1.) Declining Revenue
2.) Increasing appetite and expectation for free music (which in turn, diminishes CD sales revenue)
3.) The harddrive moving online (Web OS)
4.) Universal wireless access
5.) Growth and innovation in online advertising industry
There are, of course, temporal barriers to this business model. A 30% decline in annual CD sales revenue in 6 years time — and dropping — certainly sounds like a dire situation, but 553.2 million units is still 553.2 million units. The cash cow might be entering her twilight, but she ain’t dead yet. Through the decades of prosperity, labels/distributors have developed a symbiotic relationship with brick-and-mortar retailers, who have even more to lose from online distribution. Appropriately so, these retailers viciously backlash against any progressive online efforts that might preempt CD sales, making it very difficult for labels to experiment with new business models in the digital realm. At the end of the day, self-interest trumps all.
The funny thing with self-interest — though often short-sighted — is its anything but an ideologue, and will adapt and change with time.
An ad-rev share model is hardly a dogmatic consumer advocacy issue. The milk will eventually dry up, and corporate self-interest will demand a revolutionary business model. Fortunately for us music fans, consumers will have plenty of leverage; the easiest way to access our collective eyeballs is through an appeal to our self-interest. What is capitalism but a big ol’ network of leveraged self-interest?
But until that day when we can listen to anything, anywhere, for absolutely free, we can all contribute to the growth of the industry with a little tough love. Go and get you some free music, however you can, whenever you can, wherever you can. The music industry might throw a fit, call you names, even threaten to charge you with file abuse. But you’ll rest easy at night, knowing that a little discipline today will steer the industry towards a future worth giving.
They’ll thank you for it later. They always do.
Part 2: Current companies leading the charge towards free music
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